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Transfer of Movable Property under U.S. Law

Discussed from a Functional Perspective

Series:

Martin Lilja

This book discusses legal rules for three functional commercial conflict situations under the laws of the U.S.A., mainly analyzing the U.C.C., the Bankruptcy Code, Common Law and Equity. In this context, the term conflict situation is meant to address a certain type of conflict arising between certain parties – e.g. buyer, seller, creditors of buyer or seller, or other types of third parties, like former title-holders to the goods – having certain colliding interests in the same property. The three conflict situations addressed in this book are the protection of a buyer in the seller’s insolvency, the protection of a seller in the buyer’s insolvency, and the conflict between a person formerly entitled to the goods and a good faith acquirer.
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II. Buyer's protection in the seller's insolvency

Extract

The U.C.C. is – just as codes often are (perhaps with the exception of Civil Code of Louisiana) – extremely detailed; it is therefore not possible to deal with every detail in this discussion: To do so would destroy all possibility of reading and understanding this text. Some exceptions that are not covered in the text are however mentioned in footnotes.

The issue: In this chapter, the focus is on whether the buyer will have a right of priority – a right to separate goods from the seller – when the seller is or becomes insolvent.

The State of Louisiana has not adopted Article 2 of the U.C.C., but applies for this matter the rules in the Louisiana Civil Code; a Code that is influenced by the Civil Codes of France and Spain.70 When no result can be derived from legislation (or custom), the courts must resort to solving the issue in equity.71

Under the Civil Code of Louisiana the voluntary transfer of ownership of a movable requires a contract between the owner and the transferee, purporting to transfer ownership. The relevant rules regulating the buyer’s protection in the seller’s insolvency are provided in section 518. While the transfer is effective between the owner and the transferee according to their agreement, the main rule is that the transfer affects third parties only when possession of the movable has been transferred to the buyer.72 The buyer is thereby not protected as against the seller’s creditors while the seller is...

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